I am a professor of economics at The University of Georgia and consultant on economic issues to a variety of corporations and local governments. Taking a generally free market, libertarian perspective, I use economics as the lens to analyze government policies from the local to the international level. I have a particular focus on government policies that strive to redistribute income or wealth either openly or in indirect ways. A lot of those thoughts are collected in my e-book, Ending the Era of the Free Lunch.

Romney Was Wrong About The 47 Percent, The Problem Is Much Worse

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy…”

Alexander Fraser Tytler, Scottish lawyer and writer, 1770

The Congressional Budget Office is just out with a new report that shows exactly how much income redistribution the government is accomplishing. Recently, liberal politicians and the media have been focused on income inequality, but they almost always use data on pre-tax and pre-transfer income before the government’s income redistribution programs have done their work. Looking at the data after income taxes, after refundable tax credits, and after government transfer programs tells quite a different story.

It is well known that only about half of Americans actually pay any income taxes. This fact became quite famous during the 2012 presidential campaign when Mitt Romney was reported to have commented about how 47 percent of Americans were bound to vote for Democrats (or whatever party promised them free stuff) since they did not pay any income taxes. This new data make clear how Governor Romney was wrong because he focused just on income taxes.

In fact, it is much worse than he thought.

The Congressional Budget Office (CBO) report divides Americans into quintiles, with each quintile holding 20 percent of the population ordered from highest to lowest income earners. So the top quintile is the highest earning families and the bottom quintile is the lowest earners. All the data in the CBO report come from 2010, which is before tax rates were raised on the highest earners by allowing the Bush tax cuts to expire for them and before additional taxes on high earners to help pay for Obamacare. Thus, even more income redistribution is going on today than was happening in 2010.

First, it is worth noting that government income transfers do not all go to the lower parts of the income distribution. Even the top quintile of income earners received an average of $6,500 per family in transfer payments which is assumedly composed of Social Security payments and Medicare benefits. The second, third, and fourth quintiles received $7,400, $10,800, and $15,200 per family on average in transfer payments. By the time we reach the bottom quintile, the average family is receiving $22,700 in government benefits. That figure would include Social Security, Medicare, Medicaid, welfare payments, food stamps, and all other government transfers. Each family would be getting some different subset of those benefits, but it adds up to a big step toward reducing income inequality.

When taxes paid and refundable tax credits are taken into account, we see that government is doing even more to redistribute income. Once CBO factors in both the money paid in and money received, we find that the average family in the top income quintile pays a net $52,500 to the federal government. The second quintile pays an average net $8,800 per family.

Then things change. The third quintile receives a net gain of $2,600 per family on average. The fourth quintile does even better, receiving an average net gain of $12,700 per family. Finally, the bottom quintile of income earners ends up $22,700 better off per family after all the government taxes and transfers are taken into account.

The main thing to note from the above is that somewhere between 50 and 60 percent of families appear to be receiving more in transfers and tax refunds than they paid in taxes. But the true picture is even worse than that. Remember that the government does a few things other than transfer money.

In fact, about 70 percent of the federal government’s spending is the transfer programs already accounted for. However, the other 30 percent still adds up to $8,000 per family. If we factor in those government services that everyone is (at least theoretically) receiving the benefit of, then we can actually get a full picture of whether people are net payers or net receivers from their interactions with the federal government.

Subtracting that $8,000 gives us average values for each quintile of $44,500 net paid for the top quintile, $800 net paid for the second quintile, a net $10,600 received per family for the third quintile, $20,700 received on net for the fourth quintile, and $30,700 received for those in the bottom quintile of income earners.

This suggests that in actuality around 70 percent of American families are receiving more from the government than they are paying in. That estimate is based on the fact that the second highest earning quintile is now roughly breaking even (paying a net $800 per family). Since this quintile holds those from the 60th to the 80th percentile, a reasonable guess is that half are receiving net benefits and half are net payers to the government.

Due to the progressive nature of our income tax system, the actual number is likely somewhat past the midpoint, so perhaps 72 or 73 percent of Americans are actually receiving more from the government than they pay in with only a bit more than one quarter of the country actually paying more in than they are getting back.

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That’s not even how it works. We Americans work for what we get. Why would we be taxed progressively just to pay for the lazy people buying beer with their food stamps, or buying iPhone’s with their government given checks. That is not how you run a country. You will see that later on when your social security isn’t so secure.

We’ve spent 70 trillion dollars to “end poverty” in America since the “New Deal.” Yet we have a higher percentage of people IN poverty than when we started. Those people won’t starve, us ass-kicking earners take care of them otherwise (with jobs and donations).

You’re a moron. You are living in a fantasy world. Let me bring you to reality my uninformed friend. You must be one of the fortunate few. Everyone should have to suffer a life of the working class American for at least a year, because then you would know. In a competitive economy, wealth and prosperity comes at the expense of another human beings poverty and suffering. You see, if it wasn’t for the 75% of Americans (2010 US Census) making less than 50K and struggling to make ends meet and raise a family, prosperity wouldn’t exist for you. The massive inequality and the ignorance of the fortunate few shows why we need to go back to the drawing table and realize that capitalism, communism, socialism, all these things of the past HAVE FAILED. Let’s get some new and fresh ideas and let’s see overhaul of this sad excuse for a government. The hell with republicans and democrats!! Let’s get something totally new in office. Let’s change the monetary system and stop printing money, and make the dollar actually worth something rather than a mere illusion established by policy. This is all a sick joke. Wake up. Open your eyes.

The official 2012 rate shows that 46.5 million Americans, or 15% of the population, live in poverty. That rate is also unchanged over the past two years.

A record 1.1 million students attending public schools in the United States are homeless in 2013. According to the U.S. Department of Education, the number of homeless students has increased by 10 percent in 2013, from 1,065,794 in 2012, to 1,168,354. Forty-three states have reported increases from last year, with 10 states reporting increases of 20 percent or more. The number of homeless children has grown 24 percent over the past three years.

The actual numbers of homeless students are no doubt higher than those reported, because many parents are afraid to report their condition, fearing that child welfare agencies will take their children from them.

America’s wealthy are its largest beneficiaries. According to the Congressional Budget Office, $33 billion of last year’s $39 billion in total charitable deductions went to the richest 20 percent of Americans, of whom the richest 1 percent reaped the lion’s share.

Last year, not one of the top 50 individual charitable gifts went to a social-service organization or to a charity that principally serves the poor and the dispossessed.

On an average night, more than 20,000 people sleep on Los Angeles’ streets, and almost 2,000 of them are families or children living on their own, the city reported. Homelessness has increased 26% in Los Angeles since last year, and 16% of L.A.’s homeless were turned away for housing help.

Chicago reported an 11.4% increase in the number of homeless families since last year, with requests for emergency food assistance up 6%. City pantries had to reduce the amount of food they gave to the hungry. And homeless shelters were increasing the number of people allowed to sleep in a room to meet rising demand.

Officials around the country cited a lack of affordable housing as a factor in persistent homelessness. Nineteen percent of the cities’ homeless adults had jobs, including 22% of those in San Francisco, according to the survey.

Wealth attracts many friends, but even the closest friend of the poor person deserts them.

The poor are shunned by all their relatives— how much more do their friends avoid them! Though the poor pursue them with pleading, they are nowhere to be found.

MERRY CHRISTMAS AMERICA, and remember, all those lazy people wanting hand outs, are also the backbone of this country and without our suffering, you nothing but shell of a man who once thought he was somebody because he enjoyed the view from the top, made him feel superior and powerful. Greed and a sick twisted view of reality. You can’t break free from financial stress unless you’re making tons of money. 93% of America makes less than 100K. Come on man, please educate yourself and get down off of whatever sense of superiority you feel, because it is hollow and empty. It is not real.

926, that’s not the issue. Of course we all agree that the poor shouldn’t be forced to starve. Most reasonable people agree that these safety nets should be in place for those who need them. Heaven knows, I’ve been there. That’s not the point. The point the author is making is that those who receive more from the government than they pay into it clearly have more incentive to vote for those who promise to give them more free stuff. This doesn’t take a genius to figure out. It also doesn’t take a genius to figure out that any society in which 70% of its citizens make zero net contributions towards the benefits everyone enjoys yet dictates to the 30% who do that they need to pay more will eventually collapse. It simply isn’t sustainable. That’s the issue. Politicians who crave power know this, but they don’t care, which is why they continue to promise things they actually do not have the resources or the power give. They can only take from those who have earned or borrow ever more money from China. That’s the point. Now, if this were the case with, say, 25% of the country receiving more than they pay in, I might say that would be more sustainable. There are people in America who truly do need help to survive, but a great many of the supposedly “poor” people in this nation own flat-screen TVs, Xboxes, and iPads, carry smart phones and own more than one car, yet we’re paying for their food and healthcare. Does this really make sense to you? I’ve lived in and visited countries where real poverty exists. I’ve also walked through some of America’s worst neighborhoods. Believe me when I say that real poverty virtually doesn’t exist in America, not like it does in most of the world, anyway. People living under the poverty line in America have life much better than 90% of the world, make no mistake.

Thanks for the comment. This does account for payroll taxes, but not for state taxes. State taxes tend not to be quite as progressive and how much redistribution there is in state spending varies by state a good bit. I have looked at this issue before and I am pretty sure that a number in the 70 percent range for net takers is conservative.

Thanks for the comment, but this takes into account all types of taxes, not just income taxes. So those in the lower quintiles are getting full credit for all their payroll taxes and even for a share of corporate taxes which the CBO apportioned out across people.

If you look at it on a state by state level, you will see that there are more takers than makers in red states, and more payers than takers in blue states. There are exceptions, but the people screaming the loudest about paying too much in taxes don’t mind mooching off of liberal states.

Takers? Really? How about studying how much money the wealthy are receiving in corporate welfare? Tax breaks? Tax loopholes? That’s a double wammy for the rest of us. We have to pay for the policy and then we pay for the advantage it gives the business entity.

Wealth in our country is often redistributed upwards (via subsidies, low capital gains taxes, low tax payments from wealthy whose wealth is safely tucked into offshore accounts, etc) but magazines such as Forbes focus on “takers” who get food stamps, etc (lower income people whose incomes are helped by gov’t). Most of us know who the real takers are, but the knob gobblin’ will continue as long as we idolize the wealthy.

Thanks for the note, but low taxes on the wealthy is not income redistribution. Letting people keep their own money is, by definition, the opposite of redistribution. We can debate how progressive or flat or tax structure should be, but we cannot redefine words.

Any government benefits that the wealthy receive are accounted for in the CBO study. Remember, this is not some right wing study, but one done by the non-partisan Congressional Budget Office.

No, they show no sense of gratitude for the wealth that is being transferred to them. Is that because they don’t see $30,700 appear in their bank accounts every year? Well, if they don’t have bread, let them eat brioche.

I think Leigh has a subset of the wealthy in mind, not the wealth creators but the wealth distributors like the market speculators who are protected from risk by federal bailouts (and by scant legal prosecution for abuse) or the contracting trough in DC. Government benefits are far from being evenly distributed across a given quintile.

Interesting how you paint the picture of the redistribution of wealth. This is just a manipulation of you cherry picking the data to support your own claim. Yes, the top 20% contribute the vast majority of tax revenue to support the “luxurious” benefits that all the other Americans receive like basic healthcare, food, and shelter from the government. What you fail to mention is how the system is setup to benefit the ultra rich. And how manipulation of laws, patents, lobbying, tax code, and collusion benefit the top quintile. Say person #1 is stock broker and makes $10 million a year and pays $1.5 million dollars in taxes. And say person #2 is a fire fighter making $80K and pays $25K in taxes. And both parties receive the same “benefits” from the government as in defense, highways, national parks, soc. security, etc. Like I really feel sorry for person #1 paying all that tax and not seeing $1.5 million of tax benefit directly to them. The USA is a country that has a set of laws and principles that made it possible for that individual to work hard and make that $10 million. The least they could do is a give a little back and pay that forward. The real question of the matter is the distribution of wealth in the country and how according to the gini coefficient, we have the worst income disparity in the world for any first world country. Where the top 400 Americans have more wealth than the bottom 50%. The income disparity hasn’t been this bad in recent years since around the Great Depression. Not sure your motive behind your book or article. But great job convincing the public to feel sorry for the Rich.

I am sympathetic to the morality of your comment, behind which lies the premise that people should be able to keep what they earn.

But at this point in our history, I do not think that morality is the prime agent of causality. Dependence and desperation are becoming the prime agents of change. We are experiencing a time in which there is a concentration of wealth. Greater numbers of the multitude are finding themselves in a position of relatively greater desperation and dependency. I acknowledge that the assignment of blame for this situation is a matter for debate. But the moral question of blame is far less important than understanding the agents of change.

If this concentration of wealth that we are now experiencing had occurred before democracy had been entrenched, before the universal franchise prevailed, then the wealthy would have nothing to fear but a periodic popular revolt here and there that would not have created a threat of socialism. However, the current socioeconomic reconfiguration (in which the wealth of the middle class goes to the upper class and the people of the middle class goes to the lower class) is occurring after democracy has been entrenched. When we finally get the point where there are many poor and dependent, and few rich, but all can vote, and only a weak middle class to buffer the growing animosities between the few and the many, the product of this socioeconomic condition is predictable to those who study the causality of these things.

In view of the forces of change, if the masters of capital so fear the forced redistribution of wealth, then they would do themselves and all of us a favor by not resisting socialism through political campaigning and subterfuge, but by avoiding socialism through voluntarily improving wages and increasing local jobs, even if that means reporting a slightly lower EBITDA. At least then, reform could be made on their terms, and not on the terms dictated by popular leaders. If the middle class were rehabilitated by the upper class, which is within their power, then wouldn’t they improve their markets, and defeat the threat of socialism?

Tim you have valid points but are confusing your terms. Socialism is the ownership and management of means of production by the society as a whole. This was a massive failure in the USSR and in China- socialism does NOT work because production must be managed by capitalists. Socialism is the opposite of capitalism. What we have in the US is not socialism but communism, a Christian concept (founded, admittedly, in Judaism) where resources are shared by a caring society with those in greatest need.

When that is straightened out, what we see is that communism works well in a capitalist society. The opposite of communism is basically Lassez-faire, where the rich do what they please and exploit the proletariat (the masses who are under the heels of the rich and powerful). The way out of this mess is not necessarily MORE communism (enforced sharing of resources with those in need). The best answer is my solution- higher corporate taxes but applied to the INDIVIDUAL owners of equities rather than the “corporations”. By simply (if anything in taxation is simple) pushing the taxes onto the individual owners with graduated income taxes, the middle class who aspire towards wealth and ownership (that is, to become capitalists) would be paying the lower marginal rates on THEIR shares of such corporate taxes, increasing the population of capitalists and providing additional funds for the spending by the masses in the thus growing middle class.

While encouraging the truly rich and wealthy to pay their “wage slaves” more would help some, making more of us wealthy capitalists is the best way to expand the base of wealth.

If we had no debt and no deficit, you’d be correct, but we do, so I humbly disagree. I suppose in a warped kind of way you’re technically right. Its not income re-distribution….its obligation re-distribution. Semantics. We’ve rung up a very large sum of debt – financial obligations – that were committed to under specific revenue generation rates. When those rates are changed after the fact, the obligations are redistributed.

Tytler never wrote the quote you attribute to him. You can read about the history of the quotation, which first surfaced in 1951, and how it has changed since then here: http://www.lorencollins.net/tytler.html.

Hi Jeffrey. This is a great article but does this take into account that the distribution of wealth from today has changed dramatically in the last 50 years. The ratio that the 1st quintile is making as compared to the 2nd, 3rd, and 4th quintile is greater than it was 50 years ago. Thus “salary” or “tax” numbers will be vastly skewed. I wonder how the numbers would change if you looked at the 70′s. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/06/26/congrats-ceos-youre-making-273-times-the-pay-of-the-average-worker/

Thanks for the note. Yes, the top 1 percent make more now than they used to (thank the internet and globalization), but this is simply looking at taxes and benefits, not income. In our system, more income means more taxes but we have also removed many poor and even middle class people from the income tax rolls since the 70s (interestingly, mostly under Reagan and G. W. Bush, not under Democrats).

we have also removed many poor and even middle class people from the income tax rolls since the 70s (interestingly, mostly under Reagan and G. W. Bush, not under Democrats).

Ok, all stories such as this, (I find the hard numbers fascinating, thank you!), NEVER make one suggestion as to how to fix. ISSUE: The USA is falling apart. Our infrastructure is in rotten condition. I include the general economy as infrastructure. FIX: Raise the top income rates 50% or more. We NEED to tax the crap out of the rich; therefore we NEED the rich. You said it, the Republicans are primarily the cause of the decimation of the middle class. What did they do to cause this? REVERSE it. Cause and effect man; that simple. Prior to Ronnie; rich job creators could not stand to pay taxes. Work around? Pay the worker more; let HIM pay more. [ Actually, Jeff, a great numbers crunch article would be the math on what kind of revenue the govt would bring in and what population economic health would be, if people were paid an amount comparable to, say, 1972. Even with current tax rates, if the middle class on down were paid respectable, livable wages; could WE lift ourselves up/take less from govt AND provide for additional revenue to fix infrastructure? If the numbers show; No. Then my fix is the only solution.] [My bet; it would be close. Surely better than what we have now.]

In our system, more income also gives you the means to hire accountants to move your money to overseas tax shelters or you can buy lobbyists and then politicians to write laws that benefit you directly.

One big mistake that analysts make is: Workers whose pay is so low that they qualify for gov’t subsidies like SNAPS (food stamps), are not the people who are the beneficiaries of those same gov’t subsidies. The true beneficiaries are their employers, since without the gov’t's help, those employee’s could not continue to work for them.

Thus, many of these so called handouts are not really handouts to the people who receive them, but, in fact, are benefits to wealthy employers. I’m just sayin’.

The poor use the share they receive to eat, shelter, clothe themselves and their CHILDREN (granted, there is a small amount of abuse). However, the rich and influential use the share they receive to enrich themselves further; little “trickle down” because these supposed “job creators” are creating jobs off-shore and hoarding their profits in off-shore accounts (bypassing BILLIONS of taxes). As the Pope said, the glass that is supposed to “overflow”, just gets bigger; thus there is little “trickle” for job creation (income for workers); wages do not grow for workers to keep up with the cost of living. The wealthy gain the most (more and more wealth) from the government via military contracts, private for-profit prisons (and other privatized industries), publicly financed stadiums, interstate highway and railway use, airport use (infrastructure generally). The wealthy also have the benefit of lobbying, subsidies for the most ridiculous reasons, tax exemptions (paid to create jobs (lol!) or for other special favors. Yes Virginia, there is a more and more lop-sided America, putting more families at risk of poverty who are then reviled and shamed and for not having enough to support themselves.